ASIA

Economic Overview

Asia houses some of the largest economies in the world and is comprised of more than 4.4 billion people, making up 60% of the world population. Asia is the fastest-growing economic region in the world, the largest regional economy with a nominal GDP of US$18.5 trillion as of 2010. China’s socialist market economy is the world’s second largest economy and Asia’s largest, with a nominal GDP at an astounding US$10.36 trillion in 2014.

Asia has had some of the largest economic booms in history, starting from the 1950-1990 Japanese economic miracle—the 1961-1996 Miracle of the Han River in South Korea—and the 1978-2013 economic boom in China. In fact, China is the world’s fastest-growing major economy, with annual growth rates averaging 10% over the past 30 years.

The wealth of Asia highly differs between, and within, countries. This is attributed to vast differences in size, culture, environments, and government systems. The largest economies in Asia (not including the Middle East) in terms of GDP (PPP) are China, India, Japan, Indonesia, South Korea, Taiwan, Thailand, Malaysia, Philippines, Vietnam, and Singapore. The Chinese city, Hong Kong, has the twelfth highest GDP (PPP) in the region at US$397.5 billion in 2014. Wealth—in terms of GDP per capita—is greatest in the East Asian territories of Brunei, Hong Kong, Japan, Macau, Singapore, South Korea, and Taiwan.

Asia—with the exception of Hong Kong, Japan, Taiwan, South Korea, and Singapore—is currently experiencing quick growth and industrialization. China and India are on the forefront of the growth as they are the two fastest-growing major economies in the world. Most Asian economies depend on manufacturing and trade for growth. Over the past hundred years, Asia has had large trade surplus with the rest of the world and rapid economic growth, accumulating over US$4 trillion of foreign exchange reserves—over half of the world’s total.

In 2013, the economy of China experienced a significant slowdown in GDP growth, from 9-10% annual growth to around 7-8%, when there was a change in leadership (Hu-Wen Administration to Xi-Li Administration). This slowdown had a significant effect in some developing economies, Southeast Asia and India in particular. The Philippines were an exception, growing at rates at par with China from 2012-2013.

In September of 2013, China opened the Shanghai Free-Trade Zone to improve their economy. This free-trade zone allows international trade to be conducted with minimal restrictions and fewer customs duties, increasing the ease of foreign trade. The zone is tax-free for the first ten years and provides financial support that benefits overseas investments, intended to encourage foreign direct investment. Chinese businesses have since been able to obtain foreign loans at lower interest rates. The implementation of the Shanghai Free-Trade Zone appears to have been successful, as China remains the fastest-growing nation in 2015, according to the Bloomberg News Consensus Surveys.

Although there are large economic disparities in Asia, contributing to large tension in the region, smaller East Asian countries are experiencing economic growth. When you look away from the larger economies in Asia—such as China and Japan—you will see growth rates in 2014 between 1.6 to 5.6%, averaging around 4%. Despite recessions and sub-par growth in Europe and the US, East Asia (excluding China and Japan) is a net capital exporter at US$245 billion.

There are some concerns about the economy in the region. There is an enormous quantity of cheap labor, particularly in China and India, giving large work forces an economic advantage over other countries. However, the rising standard of living in this region will eventually lead to an economic slow-down. This slow-down isn’t too threatening. According to the World Bank, China may become the largest economy in the world between 2020 and 2030 while India may become the second largest world economy between 2030 and 2035.

According to economists, Asia will see dominating global growth in 2015. The Philippines is the second fastest-growing economy in the world thus far in 2015, only behind China. India, Indonesia, Malaysia, and Thailand are ranked the fastest-growing economies in the world—according to Bloomberg News Consensus Surveys. Taiwan, South Korea, and Singapore also made it into the top 20. Due to Asia’s steady growth, it will likely remain an investment hot-spot for businesses around the globe.

NUTRITIONAL PRODUCT MARKET

Asia-Pacific is the largest market for dietary supplements and nutrition products globally. Although Japan is a large player in the nutrition product market, the two robustly-growing regional segments in the Asia Pacific nutrition products market are India and China. The Asian market is primarily driven by a greater awareness of healthcare and a cultural preference for nutritional products over pharmaceuticals.

The increase seen in disposable income in Asia allows consumers to spend more on nutritional supplements and healthy foods. According to the National Bureau of Statistics of China, the annual per capita disposable income of urban households in China increased form US$2,271 in 2008 to US$3,408 in 2012. India is also seeing a rise in disposable income as the overall annual disposable income increased for US$1,366 billion in 2010 to US$1,587 billion in 2013. Regardless of the increase in disposable income, it appears that Asian countries are willing to spend a greater percentage of their relative income on dietary supplements. For example, the typical Vietnamese consumer spends over four times as much of his relative income on vitamins and dietary supplements than Australians.

In 2012, it was believed that if nutrition product businesses were not exporting goods to Southeast Asia, they were doing it wrong. However, some believe that the trends might be shifting. Senior Research Analyst for Euromonitor International, Daniel Grimsey responded to concerns that the vitamin and dietary supplement “party” in the Asia Pacific region may be slowing down. Statistics from Euromonitor International demonstrate that the growth of the supplement market has decreased from roughly 12% in 2011 to about 8% in 2013 in the Asia Pacific region (sans Japan). Some supplements (evening primrose oil, Co Enzyme Q10, and probiotic supplements) appear to be dragging down growth, while others (protein, pediatric, and fish oils) are lifting growth up. Although there is some concern about the Asian market, Grimsey states, “There are many reasons to feel optimistic about the future [of nutrition products] in Asia.”

The percent value growth in the Asian nutrition products market appears to be stable. Although the growth peaked from 2009 to 2011 before declining in 2012, average growth rates are projected to stabilize in the future years, at similar levels to the pre-2009 boom. In fact, the Chinese and Indian middle classes appear almost as enthusiastic as Americans when if comes to daily use of nutrition products. About 75% of Americans and 65% of Chinese and Indians take vitamins/dietary supplements regularly. Approximately 45% of Japanese report taking regular vitamins/dietary supplements, matching reports from the UK and Brazil. There are many factors contributing to the popularity of nutritional products including: the aging population, pollution problems, the beauty boom, and the baby boom.

The population of individuals 65+ in Asia continues to grow from 200 million in 2000 to 300 million in 2015. The rates are projected to grow above 450 million in 2020. The aging population has provided a 14% CAGR in fish oils, 17% CAGR for calcium, and 29% CAGR in glucosamine. China, Vietnam, Philippines, Thailand, and India are all showing substantial growth in the nutritional products targeted to the aging population. Products, such as calcium chews and multifunctional products for the aging population have recently been launched and are growing in popularity. Because the pollution levels hit 20 times the safe limit in China, and the surface ozone pollution is killing crops in India, antioxidants are on the upswing. Vitamin E and C both have a 17% CAGR. Some of the other fastest-growing supplements in Asia include: sports nutrition, collagen, vitamin pops and chews for youth, and those aimed to increase brain function.

Singapore has recently been receiving attention in the nutrition products market. Singapore has become an emerging country that is playing a key role as a growing place of business, as well as a bridge to the other areas in the region. The Republic of Singapore is modernizing and growing rapidly; in 2012, the EIU’s inaugural Global City Competitive Index ranked Singapore as the 3rd most competitive city in the world, behind New York and London. Singapore has a prime location for importing and exporting to the Southeast Pacific region of Asia, even extending to India, making it a crossroad in global commerce. Singapore has been turning its attention to health and wellness in recent years—with a nutrient supplement market, reaching US$260 million in 2011. Although this number is small compared to other countries, there’s large potential for growth, making Singapore an important area when in Asia in terms of the nutrition products market.

The successful marketing of nutrition products differs region-by-region, predominately due to societal trends, standard of living, and wages affecting spending in particular areas. The Asian nutrition product market has an estimated worth of US$11 billion in 2011 and is expected to grow to US$28.5 billion by the end of 2016. It contains major players in the nutrition product industry and will likely continue this pattern. Targeting the Asian nutrition product market will likely continue to benefit businesses and manufacturers internationally.

Beauty Products Market

Asia is the second largest market for beauty products, behind Europe. The Asian region encompasses many countries that cover a wide array of economies, with a great diversity in wealth and consumer market development.

The beauty and personal care products market is one of the most diverse and dynamic marketplaces globally—with the sector, ranging from the basics used for everyday needs to the most prestigious and luxurious products. The marketing interest in Asia is strong, as these economies have over 3 billion consumers. Because of the diversity of the consumers of the region, it is important for marketers to focus on the dynamism of the emerging and novel markets.

The potential for sales of beauty products in the Asian markets is vast; however, it is important to understand the trends within each diverse economy. China is one of the largest markets for beauty products in Asia. The general higher personal hygiene standards have lead to a steady growth in the Chinese market. In 2013, Chinese women and—increasingly—men spent US$26 billion on cosmetics alone, reflecting a 13.3% growth annually according to Euromonitor International. The Chinese middle class is growing rapidly. In 2030, 70% of the population is expected to be middle class, increasing average disposable income, which will likely continue to grow the beauty products market. Currently in China, cosmetics and beauty products now outstrip groceries as the highest selling item in department stores, according to a Fung Business Intelligence Center report. Some of the highest categories of growth in China (2014) include: baby and child-specific products, men’s grooming products, color cosmetics, and skincare. Currently in China, large domestic companies have relied on popular TV shows to market and spread awareness for their products.

While China remains the leader in the Asian beauty products market, Japan’s beauty market has experienced recent contraction. However, in 2014, the Japanese beauty products market enjoyed its third consecutive year of growth. Along with the positive growth, premium products gained share. The older population in Japan is increasing while the younger generation is shrinking. Manufacturers and businesses that are targeting the Japanese market should focus on consumers over the age of 50. Popular categories include: skincare for the aging population, hair care, sun, and oral care. Looking ahead, the beauty products market in Japan is projected to remain flat in the forecast. However, as the population is predicted to decline, the volume of sales is projected to do the same. Manufacturers will likely increase unit prices and sales per consumer in order to maintain the current market.

Although the Japanese have the highest standard of living in Asia, South Koreans are more likely to buy prestigious and luxury skincare products and less likely to spend money on basic soap and shower products. Beauty products have been experiencing serious growth in the past few years in South Korea. Vivienne Rudd—director of global innovation at market researcher, Mintel—stated that South Korean beauty and personal care retail market posted 5.8% annual growth up to 2013, compared with just 2.1% for the UK and 3.9% for the US. Increasingly, South Korea is setting the tone for the growing market in skincare products, creating the all-in-one BB creams that are popular internationally. Currently, South Korea is a hot market for innovation and innovative products, even overtaking markets like Japan. South Korea is establishing its expertise in skincare. Because South Korea has a current obsession with innovative products—using unique and new ingredients—sales of large, international premium brands and sales in department stores slowed while sales through specialist retailers experienced growth in 2014. Domestic beauty and personal care had already reached maturity by 2014 in South Korea, thus Korean manufacturers are seeking overseas markets for future growth. However, the research and development efforts to create new and interesting products have continued to help the popularity of the market—both domestically and overseas.

Although India has one of the largest economies in Asia, the beauty products market is limited to urban areas. Awareness of beauty products through TV and media marketing has driven growth in 2014, primarily in premium brands. At this time, international brands are dominating the beauty products market in India. The future of the market includes Internet retailing as the next big distribution channel.

The most dynamic markets in the region are Indonesia and Vietnam. The combination of the expansion of the middle class and the emerging wide consumer base at the lowest price platforms will sustain steady growth. The skincare market will generate around 46% of Asia’s beauty products market value growth over 2013-2018. The skincare market is becoming largely diverse in terms of price tiers, formats, and functions. Although small retailers are becoming more popular in certain countries, mass markets continue to dominate 70% of total regional sales in 2013 and are only expected to increase further by 2018.

It is clear that the Asian market is one of the most dynamic and diverse regions in the world. Because of the booming regional beauty products market, it will benefit marketers and manufacturers to watch and understand the marketplace within each country of the region before entering.

Food & Beverage Market

Functional foods and drink are in demand globally, driven by individuals who are becoming aware of the importance of a healthy lifestyle. Although functional foods and drink are typically more expensive than conventional food and beverages, global sales were up 3% in 2013, reaching a healthy US$749.6 billion. This value is equivalent to 34% of the total beverage and packaged food sales globally, according to Euromonitor International.

Although there are many emerging markets that are driving the growth in the global functional foods and drink market, Asia continues to be the top player in the market. Euromonitor International’s Health and Wellness data shows that out of the top-10, fastest-growing countries in Health and Wellness in 2013, five of them were in Asia. China—including Hong Kong—was first on the list, followed by Vietnam (3rd), Indonesia (5th), Thailand (8th), and India (10th).

Asia saw double-digit growth in medical health in 2011, increasing consumer awareness that prevention is better than cure. In China, pre/probiotic yogurt consumption is becoming increasingly popular, taking up one-quarter of the total pre/probiotic yogurt sales in Asia. Although functional foods and drink are becoming increasingly popular in Asia, they are still largely targeted at the higher income group in many countries. The middle & low-income consumers are very interested in drinking and eating well. Therefore, in order to expand the market further, companies will have to reduce prices and look into expanding their consumer segment.

Asia has a surging population over the age of 65 that have not been fully addressed when it comes to marketing functional foods and drink. Matthew Incles—market intelligence manager at Leatherhead—stated that, in particular, there are opportunities for businesses and developers to prosper if they target the aging population. Functional products that include fortified fatty acids, such as omega-3 and omega-6, would prove to be extremely popular in Asian markets due to the aging population.

All-in-one products with multiple functions incorporated in their product have not been properly introduced to Asia and will likely become very marketable as long as such products can be integrated into the consumer’s daily budget. Saving consumers time and money by incorporating many different key ingredients into one product will benefit manufacturers and retailers. Focusing on packaging could also be a useful tool when integrating into the Asian marketplace. Developed Asian countries like Singapore, China, Hong Kong, Taiwan, and Japan are attracted to family pack size or multi packs to push consumers to consume. However, developing countries like Indonesia and the Philippines would benefit from single-serve or smaller packaging so that the cost per purchase is lower, thus fitting into their daily or weekly budget.

The Asian functional foods and drink market will likely move towards polarization. The existing consumers will likely grow to become more sophisticated, willing to spend more money for innovative, new products. At the same time, we will likely see existing functional foods and drink products being repositioned to target the middle-class consumers. Because Asia is realizing the importance of eating and drinking well, it is likely that the market will continue to thrive as long as the manufacturers and retailers ensure products fit into the consumer’s ideals and budgets.